Michigan Retirement Benefits Tax Exclusion on Inherited IRA

[syoung123]

Hello, my spouse inherited an IRA from her mother.  Her mother was over 80 years old when she passed, and my spouse is over 67 years old now.  Based on their ages (senior citizens), is non-spousal inherited IRA still taxable in Michigan?

[DavidD66]

Yes, distributions from an inherited IRA are taxable, as they do not qualify for the standard Michigan retirement income subtraction. Only a surviving spouse is eligible to treat an inherited IRA as their own and qualify for the exemption, subject to the original owner have met certain age & distribution requirements.  

[syoung123]

To confirm, age (both my wife and deceased mother-in-law)) is not a consideration.  Inherited IRA from non-spouse does not qualify for retirement benefits tax exclusion in Michigan, period?   Turbotax somehow showed the inherited IRA RMD distribution on the Michigan Retirement and Pension Schedule (form 4884) as allowed tax exclusion.  I wondered if I input the data to Turbotax incorrectly?  

[JamesG1 · Accepted solution]

The TaxBook states:  Qualifying retirement and pension benefits include:

Benefits received due to a disability, or as a surviving spouse if the decedent qualified for the subtraction at the time of death and was born prior to January 1, 1953.

In TurboTax Online, when entering the IRS form 1099-R, at the screen Do any of these situations apply to you, I selected I inherited this IRA.

In the Michigan state income tax return, at the screen Retirement Income and Pension Summary, the software selected code N pension subject to Michigan tax.

@syoung123 

[syoung123]

Ok, I see it now.  The inherited IRA that my wife got from her mother does not show on the Michigan Retirement and Pension Schedule form 4884, "part 3 retirement and pension benefits" section.  So it is taxable for Michigan.  Thank you.